Dealing with Succession of Non-Estate Assets

When most clients are asked to list their total “estate”, they will often include a

number of assets that they do not personally own. These will include assets owned by companies and trusts that they control and interests in superannuation funds.

Most clients, who are particularly concerned about asset protection and taxation flexibility, will usually ‘own’ very few assets in their personal name.

Estate assets include:

  • Personally owned assets, such as real estate and company shares

  • Expectancies, such as rights under existing contracts (royalties, rents, rights to use) or rights as a beneficiary of a trust (unitholder, absolute beneficiary)

  • Loan accounts – entitlements to a share of profits in partnerships, and amounts owing by companies or trusts.

All of these assets can be dealt with in a Will.

COMPANY AND UNIT TRUST ASSETS

Assets owned in Company or Unit Trust structures cannot pass by gift in a Will. However, the Will can provide a gift of the company shares or units in the Unit Trust to the intended beneficiary or the intended beneficiary’s Trust, if the shares or units are owned by the Will-maker.

SUPERANNUATION BENEFITS

Generally, superannuation benefits are excluded from the estate. The Trustee of the superannuation fund distributes the benefits to dependants at his discretion or in accordance with the binding death benefit nomination.

INSURANCE PROCEEDS

Some insurance proceeds are excluded from the estate. Examination of the policy or contract will determine ownership of the proceeds.

DISCRETIONARY TRUST ASSETS

Assets owned by a Discretionary Trust cannot be passed by gift in a Will. However, if the Will-maker controls the trust, he may be able to pass this control, via his Will or by another instrument, to the intended beneficiary.

The Principal or Appointor of the trust will often have the power to change trustees. If the Will-maker is the Principal or Appointor, this power may be able to be passed, in their Will, or by another instrument, to the intended beneficiary of the assets of the Discretionary Trust. This will effectively pass on the control and benefit of the Trust.

TRUSTS – SEPARATING CONTROL

Where a Trust holds several assets and these assets are intended for the benefit of different beneficiaries, difficulties usually arise if the control is transferred to all of the beneficiaries as a group. It is far better to ensure that the individual beneficiary has full control over their specific assets.

The Trust could be terminated and the assets distributed to each individual. Any asset protection will immediately be lost. A CGT event will occur and a liability for stamp duty activated (depending on the asset).


The preferable alternative is to “split" the trust. This will require an amendment to the Trust Deed to allow for separate control of different assets in the same Trust so that control of each asset can then be passed to the intended beneficiary at the appropriate time, either on the death of the controller or sooner if desired.

Because the process does not involve the creation of any new trusts or any disposal or transfer of trust assets, it will not activate a liability for CGT or stamp duty. However, great care must be taken to structure the changes without creating any new trusts.

TRANSFER OF ASSETS HELD IN ONE COMPANY

Where there are a number of separate assets held in one company, similar difficulties can arise. You must give a lot of thought to who owns the shares in the company and how that company might be controlled in the future. This is perhaps one of the most difficult aspects as there are complicated tax issues including punitive tax under Division 7A of the Income Tax Assessment Act 1936 if processes to align the estate plan with company assets are not handled correctly.

SUMMARY

Non-estate assets cannot be dealt with in a Will. However, the control of non-estate assets can usually be dealt with in a Will.


Control of a company or unit trust can effectively be handled by the 'gifting' in a Will of the individually owned shares or units to the intended beneficiary. It may also be appropriate to consider a Governance Agreement for companies to determine the rules of the Company after the deceased is gone.

A binding death benefit nomination should be made to ensure superannuation benefits pass to the intended beneficiaries.


Control of trust assets can be passed to intended beneficiaries bypassing the control of the corporate trustee and/or the power to change the trustee of the trust, to the intended beneficiaries.


Where different trust assets are intended for separate beneficiaries, it is possible to split a trust to allow separate control over different assets and then pass control of each asset under the one Trust to the intended beneficiary. This can occur without liability for CGT or stamp duty, if structured appropriately and if great care is taken.

POINTS TO CONSIDER

Experienced specialist legal advice should always be sought as errors within these processes can trigger large CGT or stamp duties liabilities.


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